Suppose a firm builds a plant with more space than the firm currently needs. What type of real option best describes the firm's behavior?
A)An abandonment option
B)An expansion option
C)A land option contract
D)A contraction option

Question

Quizplus · Accepted Answer

Building a plant with more space than currently needed is an example of an expansion option. This option allows the firm to expand its operations in the future if there is an increase in demand or if the firm wants to diversify its product line.

Suppose a Firm Builds a Plant with More Space Than